Cards, Bad Days and Inflation

By Jeff Kelly on May 17, 2024

I’ve had the same briefcase for 25 years. I’ve always carried all the cards the kids have given me over the years for Father’s Day and my birthday. Because I’m old the stack of cards is high.

This one’s, my favorite. It’s clever, funny, and best of all made by the three of them.

“You are a good broker”         (no financial advisor talk here)

“You gave us the big soaker” (we had just put in a pool)

“You gave us our schools”

“And daily learning tools”

I’ve had that card in my briefcase for close to 20 years. I’ve probably read it a hundred times. I’ve read in airports, hotel rooms and at the end of bad days. It’s never missed picking me up and making me feel better.

We all need something we can turn to when things are tough. I’ve had these cards and messages. The kids gave me these cards thinking it was commemorating a day, it’s been much more to me. The day they gave me the card was one day, the days they’ve helped me get through have been so many more.

I hope you all have something that helps you on those tough days. I know what it’s done for me.

The markets aren’t seeing many tough days right now. They are experiencing the best of all worlds after a big run in the first quarter, sideways action to digest the move. As much as we’d like it to, things can’t go up in a straight line forever. The backing and filling in certain areas while others take the lead is just what the doctor ordered.

We are also seeing some slight improvements in many areas of data. This should continue through the summer. Another thing to keep in mind is the IRA (Inflation Recovery Act) and the Chips Act were passed in 2022. The Chips act was 280 billion and the IRA was over 800 billion. Only a small portion of these monies have been spent. In a very political year, we can expect the current administration to shove as much money as possible into the system prior to the election. This provides a cushion to any economic weakness.

The biggest worry should be inflation. Commodities continue to be strong. These prices eventually work their way into finished goods. The math of inflation gets harder in the next few months as well. If we have a correction this is likely to be the worry that brings it about.

CHARTS FROM THE WEEK PAST

The longest view of rates.

We’ve seen the lows, likely down some and sideways for years.

May and June are firmly in Quad 2 (good for equities).

Domestic manufacturing appears to have bottomed out.

Can it lead higher?

Pipeline activity also looks higher.

The wealth effect also looks to improve in the back half of 2024.

This could bolster consumer spending and housing.

Consumer credit still looks rough.

Bankruptcies and credit card delinquencies at a high level.

For several of the credit card companies, Capital One below, are showing a decrease in delinquency rates albeit from a high level.

A good start.

Rail traffic is still good.

Up 4.9% for the week and 8.7% year-over-year.

Rough couple of months for single-family housing starts … rolling 2-month change has fallen to -9.1%, which is among weaker readings seen over past couple years.

Employment components for both Empire (blue) and Philadelphia Fed (orange) Manufacturing Indexes remained in contraction in May … still in slowdown—not recession—territory.

China with a big move higher from industrial production but lower numbers from retail sales and home sales.

A last look at earnings season for the S&P 500.

Consumer Credit outstanding is taking a move lower.

Possibly because credit card limits have been reached.

We are a bit extended in terms of S&P 500 price based on consumer credit being in the 1^st decile.

A small warning sign.

Zero days to expiration now accounts for nearly half of all options activity.

Tech valuations are high but not close to 2000 levels.

Bitcoin has held trend after a short sharp correction.

CCC-rated bonds, the junkiest of junk, are diverging from other high yield bonds.

Stifel expects core consumer prices to move higher in the second half of 2024 causing a correction in the S&P 500.

Hedgeye also expects a re-acceleration of CPI.

The math of inflation makes this likely if only for a few months.

Aggregate Visits Dataset saw a 90 bps slowdown from +3.8% YY in last week’s update to +2.9% YY in this weeks, but on a much more difficult comparison dynamic.

The overall 5Wk Avg trend remains strong with the 2 and 3Yr trends rising as well.

Redbook retail comp sales continue to come in strong but tax refund strength is now waning with only ~3 more weeks of refunds to come.

China is selling U.S. treasuries.

They have been a net seller for a while.

U.S. population growth forecasts continue to wane.

One way to stop inflation.

WEEKEND HOMEWORK

Invesco sells Bethesda Maryland apartment complex at a massive $78M loss. Invesco paid $207M or $576k per unit in 2016. They just sold it for $129M or $361k per unit. That represents a 37% ‘discount’. Owners of US apartment buildings are increasingly taking.

Invesco’s $130M multifamily sale in Bethesda shows massive market shift

Interesting Report on China’s influence in Campus Protests-They are not our friends.

Contagious Disruption: How CCP Influence and Radical Ideologies Threaten Critical Infrastructure and Campuses Across the United States

A very good book on AI and how it will be a big positive. You don’t hear that much!

Whether we like it or not, the AI revolution is coming to education. In Brave New Words, Salman Khan, the visionary behind Khan Academy, explores how artificial intelligence and GPT technology will transform learning, and offers a road map for teachers, parents, and students to navigate this exciting (and sometimes intimidating) new world.

A pioneer in the field of education technology, Khan examines the ins and outs of these cutting-edge tools and how they will revolutionize the way we learn and teach. For parents concerned about their children’s success, Khan illustrates how AI can personalize learning by adapting to each student’s individual pace and style, identifying strengths and areas for improvement, and offering tailored support and feedback to complement traditional classroom instruction. Khan emphasizes that embracing AI in education is not about replacing human interaction but enhancing it with customized and accessible learning tools that encourage creative problem-solving skills and prepare students for an increasingly digital world.

I’ve got some things to get done this weekend. Need to get a couple workouts done. I need to get caught up on a lot of reading and of course, I need to get outside and enjoy the spring. I’m going to try and get 15k steps both days. We’ll see how that goes. I hope it goes better for the Denver Nuggets on Sunday than it did last night. Yikes! Game 7. Let’s get it done. Make it a great weekend for someone else too. Call an old friend, buy a family you don’t know lunch, walk a shelter dog. We can do so much with some simple acts. Have a terrific time.